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Indonesia is straining to subsidize oil costs
Wahyudi Soeriaatmadja and Arijit Ghosh, Bloomberg News via International Herald Tribune
JAKARTA Indonesia plans to increase fuel prices after October to cut subsidies forecast to reach as much as 138.6 trillion rupiah this year and to stop a plunge in the currency, President Susilo Bambang Yudhoyono said Wednesday.
“We must raise fuel prices,” Yudhoyono said in a speech in Jakarta. The government plans to “reduce subsidies, not abolish them.”
The budget deficit may jump to 48.3 trillion rupiah, or $4.71 billion, as fuel subsidies rise, Yudhoyono said. The government will also set “more realistic assumptions” on oil prices, inflation and oil production for next year, he said.
Rising oil costs are draining Indonesia’s finances as the government subsidizes fuel for its 238.5 million people, threatening to make it miss a budget deficit target. The government hopes a reduction in subsidies will trim fuel demand, forecast to rise 7 percent in the second half, and dollar purchases.
…The risk Yudhoyono faces is unrest on the streets after breaking a pledge that fuel-price increases in March would be the last this year. An attempt to increase fuel prices in 1998 contributed to protests that triggered the removal of the former dictator, Suharto. In 2003, street protests forced Megawati Sukarnoputri’s government to backtrack on plans to raise prices.
…Oil output in Indonesia, which became a net importer this year, has declined for the past five years because existing reserves have dwindled and investment in exploration has slowed.
(1 September 2005)
Related stories:
Indonesia to raise fuel prices after October: President (Xinhuanet)
Indonesia outlines fuel plan in bid to calm markets (Reuters)
Indonesia’s President Comments on Oil (AP)
Indonesia delays fuel price rise
Andrew Burrell, Australian Fin.Review
Indonesian President Susilo Bambang Yudhoyono last night ruled out an immediate rise in domestic fuel prices, in a move that could spark another market backlash today against the country’s ailing currency.
After emerging from a marathon cabinet meeting, Mr Yudhoyono pledged to raise fuel prices, but only after a plan was in place by October to help millions of poor people who would be affected by the move. …
Mr Yudhoyono pledged to speed up the building of oil refineries and to implement programs to conserve fuel across Indonesia, which has become a net oil importer. He also threatened to punish foreign currency speculators following the dramatic slide over the past week in the value of the rupiah. …
Meanwhile, Indonesia and Japan yesterday agreed to double the size of a 2003 currency swap deal to $US6billion ($8 billion) as part of an Asia-wide initiative aimed at averting a repeat of the crisis of the late 1990s.
(1 September 2005)
UK – Energy price rise for six million
Powergen warns more to come
Staff, BBC
Six million people who buy their gas and electricity from UK producer Powergen face bigger bills from Wednesday. The company’s domestic electricity charges are going up by 7% and its gas charges are rising by 12%.
Powergen announced the increases – adding £52 a year to a typical “dual fuel” bill – in July, blaming large rises in the wholesale price of energy. British Gas has previously warned that its gas prices may rise too by a further 15% in the coming months.
Powergen’s increases are the fourth for its gas customers since January last year, and the third it has imposed on its electricity customers.
The main reason for the higher charges has been the huge increase in the price of oil, which has gone up by 50% in the last 12 months to about $66 a barrel.
This has driven up the price of gas imported from the continent, where the wholesale price of gas is linked to the price of oil. In turn, this has made it much more expensive to generate electricity in the UK’s gas-fired power stations.
Earlier this month five million customers of EDF Energy – which trades as London Energy, SWEB and Seeboard – also saw their bills rise for the fourth time since the start of last year.
Typical household energy bills have now risen by about 20% in the last 18 months according to the consumer organisation Energywatch, which takes a dim view of the price increases. …
(30 August 2005)
US to release oil from emergency reserves
Mark Tran, Guardian
The US today said it would release oil from its petroleum reserves to help refiners hit by Hurricane Katrina. …
Katrina, one of the most powerful storms in US history, forced operators to close more than one tenth of the country’s refining capacity and a quarter of its oil output. …
As oil companies assessed the damage to rigs and refineries in the Gulf of Mexico, oil prices rose. US crude was up 64 cents at $70.45 in morning trading, while Brent crude rose 29 cents to $67.86 a barrel. Yesterday, US crude soared to a record $70.85 a barrel before closing lower.
More than 1.4m barrels a day of crude production capacity – around 7% of domestic US demand – remained shut down the day after Katrina tore through the region.
(31 August 2005)
Keep oil reserve in reserve
Editorial, Missoulian (Montana)
SUMMARY: Nation’s oil reserve needed for worst-case energy crisis, something even worse than Katrina.
Damage inflicted by Hurricane Katrina is added urgency to the previously plaintive calls for President Bush to start tapping the Strategic Petroleum Reserve. With oil prices now across the $70-a-barrel barrier, Bush faced political pressure to begin pumping from government oil reserves to boost supplies of crude oil available to refineries in the hopes of stabilizing energy prices. On Wednesday, the administration agreed to open the spigot.
Bush should have resisted. He ought to remember what he said back in 2000, when the issue came up during the presidential campaign. “The strategic reserve is an insurance policy meant for a sudden disruption of our energy supply or for war,” Bush said.
The hurricane that hit Monday certainly affects oil production and refining in the Gulf region, and it could take weeks or longer for normal production and distribution to resume. The result already is higher prices paid at the gas pump.
But bad as Katrina’s wrath appears to be, it hardly qualifies as “disruption” of our energy supply. When you hear “disruption,” think “Arab oil embargo.” The sudden cutoff of all oil exports to the United States by Arab countries in 1973-74 was the inspiration for creation of the oil reserve in 1975. The Arab oil embargo was a wake-up call. America was – and, in fact, remains – vulnerable by virtue of its dependence on imported oil. The less oil the United States holds in reserve, the more tempting it will be for American adversaries to use oil as a weapon. An ample reserve is a deterrent.
(1 September 2005)
70s Conservation Measures May Make a Comeback
Dana Milbank, Washington Post
If you were already worried about a looming energy crisis, yesterday’s briefing on Hurricane Katrina by the American Petroleum Institute was enough to make you buy a bicycle and a wood-burning stove.
The petroleum industry trade group called the briefing “to review current energy market conditions,” but what API President Red Cavaney didn’t know about those conditions could fill the Strategic Petroleum Reserve.
Cavaney was asked about oil analysts’ forecasts that crude oil prices could hit $100 a barrel. “I don’t think anybody can really give an accurate assessment,” he said.
He was asked if gasoline, in the wake of Hurricane Katrina, could reach $4 or $5 a gallon. “We just can’t predict,” Cavaney said.
Should consumers expect gasoline and jet fuel shortages? “It’s really too hard for anybody to raise a conjecture,” he said.
Could there be gas lines at service stations in the next couple of weeks? “There’s not enough information to be able to say anything broadly,” the petroleum expert said. “We just don’t know.”
What little he did know was almost all bad: A quarter of the nation’s crude oil production, and nearly as much of its natural gas output, is out of service because of the storm. Refineries that produce 20 percent of the nation’s gasoline have closed or reduced output. Pipelines supplying the Northeast and Midwest are in bad shape, a major offloading point for imported oil is submerged — and gasoline prices were already at record highs.
“The impact of this devastating storm on oil and natural gas operations will be significant and protracted,” Cavaney felt confident enough to say. “Let us understand: This is not an easy thing.”
Anybody who remembers odd-even days and President Jimmy Carter in a sweater knows how an oil shock can throw economies into recession and politics into turmoil. The cautious Cavaney was careful to avoid scary phrases such as “energy crisis” and “oil shock” — although he did say that “it’s going to be a little difficult for us to be able to get through this unless everything goes the right way.” And he was sufficiently concerned to devote much of his briefing to urging Americans to use less of his product.
(1 September 2005)
Bush Gives New Reason for Iraq War
Says US must prevent oil fields from falling into hands of terrorists
Jennifer Loven, Associated Press via Common Dreams
CORONADO, California – President Bush answered growing antiwar protests yesterday with a fresh reason for US troops to continue fighting in Iraq: protection of the country’s vast oil fields, which he said would otherwise fall under the control of terrorist extremists.
The president, standing against a backdrop of the USS Ronald Reagan, the newest aircraft carrier in the Navy’s fleet, said terrorists would be denied their goal of making Iraq a base from which to recruit followers, train them, and finance attacks.
…At the naval base, Bush declared, ”We will not rest until victory is America’s and our freedom is secure” from Al Qaeda and its forces in Iraq led by Abu Musab alZarqawi.
”If Zarqawi and [Osama] bin Laden gain control of Iraq, they would create a new training ground for future terrorist attacks,” Bush said. ”They’d seize oil fields to fund their ambitions. They could recruit more terrorists by claiming a historic victory over the United States and our coalition.”
(31 August 2005)
Bush tries to cap surge in global energy prices
President boosts supply but says pump prices may rise
Heather Long and Larry Elliott, Guardian
President George Bush yesterday ordered the release of crude oil from US strategic reserves as the White House sought to prevent the spike in global energy prices caused by Hurricane Katrina damaging the world’s biggest economy.
Amid fears that oil prices could continue rising to $80 or $100 a barrel, triggering a 1970s-style economic crisis, the president said he would boost supply.
However, he warned that American consumers may face higher prices and shortages of petrol. “Our citizens must understand the storm has disrupted the capacity to make gasoline and distribute gasoline,” he said. “A lot of crude production has been shut down because of the storm.”
The White House said last night that it expected the hurricane’s long-term effects to be small, unless higher oil prices derailed the economy. Preliminary estimates by insurers put the cost of the damage at at least $30bn (£17bn).
Mr Bush’s decision made only a marginal dent in oil prices because the problem in the US in recent months has been a lack of refining capacity to turn crude oil into petrol and diesel.
While the price of crude edged back to just below $70 yesterday, wholesale petrol prices were up 20 cents a gallon to a record $2.68 in response to the shutdown of nine refineries on the Gulf coast.
“It is now appropriate to talk of a major energy crisis after Hurricane Katrina pushed US energy markets beyond the edge,” Barclays Capital said in a report.
The Mississippi River basin is home to a tenth of the country’s oil refineries, churning out 1.8m barrels a day, as well as to ports that handle large imports of grain and fruits and warehouses that stock a quarter of US coffee supply.
“Crude is not the problem,” said Deborah White at SG Commodities. “The heart of the problem is how much refining capacity we have lost.” While the worst hurricane on modern US record books, Andrew in 1992, ploughed through residential areas in Florida, Katrina has hit an energy and commerce artery.
(1 September 2005)
The Guardian has a section devoted to recent articles at Special report: oil and petrol.
The SWISH Report
Paul Rogers, openDemocracy
How deep are the United States’s problems in Iraq, and what are its policy options? The management consultants who advise al-Qaida and the British government now report for the US state department. [Please note that this is SATIRE.]
——————————————
…As you will recall, our previous consultancies in this field were for a somewhat different group, the Strategic Planning Cell of al-Qaida, and we are pleased that you and your British colleagues have recognised that, as consultants, we will work with anyone.
…We do not ourselves believe that al-Qaida’s ultimate aims – expulsion of western forces from the middle east, destruction of Israel, termination of elite and corrupt regimes and the establishment of a glorious new caliphate – can or will be achieved. At the same time, these aims are very real for its tens of thousands of adherents and millions of supporters, even if they are to be achieved in a timespan measured in decades not years.
Your country is therefore facing a long-term predicament to the extent that it would be eminently wise to seek a means to disengage from Iraq as soon as possible. We recognise that your problem is that you simply cannot do this, as it would be a foreign policy disaster of quite extraordinary magnitude, entailing your loss of influence in the world’s most important geopolitical region.
…What is crucial is that every industrialised and industrialising region of the world is becoming steadily more dependent on Gulf oil. Whoever controls the Gulf over the next thirty years will have a dominant influence over the world economy. Your planners in that resource security unit deep in the bowels of the Pentagon know this only too well, as does your vice-president and some other key figures in the administration.
…In the ordinary way, this would be the point at which a consultancy would make recommendations. We will readily do so, but only for form’s sake – there is no possibility of their being implemented in the short term. They are:
* withdraw from Iraq
* aid genuine post-conflict development in Afghanistan
* insist that Israel facilitates the creation of a viable Palestinian state
* promote anti-elite reforms among your closest middle east allies, including Egypt, Saudi Arabia and Jordan
* rapidly reduce your dependency on fossil fuels
You are welcome to communicate these conclusions to your political masters (and mistress), but we rather fear for your pensions if you do so.
…We therefore conclude by making a personal recommendation to you as members of the Strategic Advisory Group of the United States state department – keep your heads down but your intellects active, serve out your time and then join one of the think tanks or action groups which will, in around five years’ time, be much more influential than they are now.
Paul Rogers is Professor of Peace Studies at Bradford University and is openDemocracy’s International Security Editor. A consultant to the Oxford Research Group, the second edition of his book Losing Control has just been published by Pluto Press.
(1 September 2005)
PLEASE NOTE that this is a fictitious report — satire in the service of truth. Paul Rogers writes weekly reports on global security from a liberal/left perspective. -BA
Westfield blames oil
Paddy Manning and Phil King, The Australian
OIL prices are knocking consumer spending and will continue to do so, according to Australia’s Westfield, the world’s largest owner of shopping malls.
The giant Frank Lowy-controlled group said sales by department stores, supermarkets and discount variety stores at its Australian centres fell in the three months to June 30.
Shoppers were hit by the rise in interest rates in March and oil prices that rose from $US48 a barrel to $US60. In the past week, oil has surged through $US70 a barrel, leading Westfield managing director Stephen Lowy to predict a continued decline in retail sales.
(1 September 2005)
China And India: A Rage For Oil
Beijing has the upper hand now. But Moscow is old friends with Delhi
Jason Bush, Business Week
American attention has lately been focused on China’s emergence as a competitor for dwindling oil supplies — witness the uproar over CNOOC Ltd.’s failed bid for California’s Unocal Corp. But a different, yet equally intense, energy rivalry sure to have a dramatic effect on geopolitics has been playing out on the far side of the globe. Asia’s other emerging powerhouse, India, is just as hungry for supplies as China. The two are battling each other in oil patches from Sudan to Siberia as they try to secure the resources to fuel their growing economies. So far, the Chinese have the upper hand in the competition.
… As the global economic balance shifts toward Asia in the decades ahead, China and India may well cooperate in many spheres. Energy, clearly, will not be among them.
(5 Sept 2005 edition)
